Section A: Overview

This chapter outlines Ontario's fiscal outlook for 2010–11 and the medium-term forecast for 2011–12 and 2012–13. In addition, it reviews federal support for the delivery of services important to Ontarians.

While the economy is gradually recovering, Ontario's families and businesses are still feeling the effects of the global financial and economic crisis. Key economic indicators have improved from lows posted during the recession, but most remain below pre-recession levels. Risks to the outlook include uncertainty regarding the U.S. economic recovery and the ongoing challenges in the global economy, such as sovereign debt concerns and trade imbalances (for further details, see Chapter 2: Ontario's Economic Outlook).

The government has already announced that it has exceeded its fiscal target for 2009–10, recording a deficit of $19.3 billion, down from the $24.7 billion deficit projected in the Fall 2009 Ontario Economic Outlook and Fiscal Review.

The Province is now projecting an $18.7 billion deficit in 2010–11 — a $1.0 billion improvement from the 2010 Budget and an almost 25 per cent improvement from the $24.7 billion deficit forecast a year ago for 2009–10.

The government is on track to meet the medium-term fiscal targets outlined in the 2010 Budget. These include steadily declining deficits of $17.3 billion in 2011–12 and $15.9 billion in 2012–13, and incorporate the initiatives announced as part of this document, including the proposed Ontario Clean Energy Benefit. The government has laid out a realistic, responsible plan to cut the deficit in half within five years of its highest point and to eliminate it in eight years.

Section B: 2010–11 Fiscal Performance

The 2010 Budget and the First Quarter Ontario Finances projected a deficit of $19.7 billion for 2010–11. The government is now projecting a deficit of $18.7 billion for 2010–11 — a $1.0 billion improvement.

The improvement to the fiscal forecast for 2010–11 is mainly due to an increase in revenue resulting from stronger economic growth and the government's prudent fiscal management. Total program expense is unchanged from the 2010 Budget plan.

Total revenue has increased by 0.7 per cent while total expense has decreased by 0.2 per cent. Total expense is lower due to the fact that the Province's interest on debt expense projection is $0.2 billion below the 2010 Budget forecast.

The fiscal plan continues to maintain a $0.7 billion reserve in recognition of the global economic uncertainty that remains.

DETAILS OF 2010–11 IN-YEAR REVENUE CHANGES

Key revenue changes since the 2010 Budget forecast include:

Personal Income Tax (PIT) revenues are projected to be $1,130 million, or 4.4 per cent, lower due to weaker 2009 revenues indicated by tax returns processed since the 2010Budget. Stronger 2010 employment and wage growth only partially offsets the weaker 2009 amounts.

Sales Tax revenues are forecast to be $326 million, or 1.7 per cent, higher largely due to stronger projected growth in consumer spending during 2010. This stronger growth is partially offset by a revenue-neutral change in the reporting of the energy component of the proposed Ontario Energy and Property Tax Credit (OEPTC), whereby in 2010–11 the credit would be netted against Sales Tax rather than Education Property Tax (EPT) as assumed at the time of the Budget. This would result in an offsetting increase in EPT. (For further information on this tax credit, see Chapter 5: Tax and Pension Modernization.)

Corporations Tax (CT) revenues are projected to be $696 million, or 9.4 per cent, higher mainly due to stronger 2009 revenues indicated by tax returns processed since the Budget. Weaker 2010 profit growth only partially offsets the stronger 2009 amounts.

Education Property Tax (EPT) is up $382 million, largely due to the tax credit reporting change noted above. This is partially offset by a revised estimate of the remaining property tax credit to be netted against EPT.

Tobacco Tax revenues are projected to be $166 million higher due to improved enforcement activities.

Ontario Health Premium revenues are expected to be $151 million, or 5.3 per cent, higher largely due to stronger 2009 revenues and faster 2010 employment and wage growth.

Land Transfer Tax revenues are projected to be $126 million, or 12.3 per cent, higher reflecting the strength in the Ontario housing market earlier in the year.

Other Taxes are forecast to be a combined $165 million higher, largely due to stronger 2010 economic growth. This includes an increase in the revenue outlook for Fuel Tax ($81 million) and Employer Health Tax ($46 million).

The $76 million increase in Government of Canada transfers is due to tobacco settlement claims that were previously announced in the First Quarter Ontario Finances.

Other Non-Tax Revenue is down $169 million due to updated information based on the current forecast.

2010–11 EXPENSE CHANGES SINCE THE 2010 BUDGET

Consistent with the government's approach to controlling the rate of growth in spending while protecting core public services, total program expense is unchanged from the 2010 Budget plan. Total expense in
2010–11 is currently projected to be $125,611 million — 0.2 per cent lower than the 2010 Budget forecast, due to a lower interest on debt expense projection than forecast in the 2010 Budget, reflecting lower interest rates than those projected in the Budget.

Table 3
Summary of Expense Changes since the Budget
($ Millions)

2010/11

Key Program Expense Changes

Ontario Clean Energy Benefit

300

Home Energy Savings Program

85.1

Extra Forest Firefighting

57.1

Other Program Expenses

8.3

Contingency Funds

(450.5)

Total Program Expense Changes

–

Interest on Debt Expense Forecast Change

(246.2)

Total Expense Changes since the Budget

(246.2)

DETAILS OF 2010–11 IN-YEAR EXPENSE CHANGES

Key 2010–11 expense changes from the 2010 Budget forecast include:

An increase of $300.0 million to provide direct relief to eligible consumers through the proposed Ontario Clean Energy Benefit, providing a credit equal to 10 per cent of the after-tax cost of electricity on their bills, effective January 1, 2011. Eligible consumers include residential, farm, small business and other small users who consume less than 250,000 kilowatt hours per year.

An $85.1 million increase to address increased demand in the Home Energy Savings Program and the Ontario Solar Thermal Heating Initiative.

An increase of $57.1 million for extra forest firefighting, to provide additional resources during the 2010 fire season, which began earlier than usual this year.

An increase in all other program expenses of $8.3 million, including items such as disaster relief support for tornado damage in Essex County and monsoon flooding in Pakistan.

Interest on Debt expense, at $9,715 million, is $246.2 million lower than forecast in the 2010 Budget. This reduction primarily reflects lower interest rates than those projected at the time of the Budget.

Section C: Ontario's Medium-Term Fiscal Outlook

MEDIUM-TERM REVENUE OUTLOOK

The medium-term revenue forecast reflects the Ministry of Finance's economic outlook and the estimated impact of government policy measures.

Table 4Summary of Medium-Term Revenue Outlook($ Billions)

Actual

Projected Outlook

Revenue

2009–10

2010–11

2011–12

2012–13

Taxation Revenue

64.9

72.5

75.2

79.2

Government of Canada

18.6

23.8

21.1

21.1

Income from Government Business Enterprises

4.2

4.2

4.4

4.6

Other Non-Tax Revenue

8.0

7.2

6.9

6.9

Total Revenue

95.8

107.7

107.6

111.8

Note: Numbers may not add due to rounding.

The medium-term Taxation Revenue outlook reflects current revenue information and projections for the Ontario economy.

The outlook for Government of Canada transfers reflects current federal-provincial funding arrangements.

The outlook for Income from Government Business Enterprises is unchanged from the 2010 Budget.

The forecast for Other Non-Tax Revenue is based on information provided by government ministries and provincial agencies.

The revenue outlook is up in 2010–11 due to stronger economic growth in 2010. The outlook for 2011–12 and 2012–13 remains close to the 2010 Budget outlook.

A stronger 2010 economic growth outlook increases taxation revenues in 2010–11. This increase diminishes over the 2011–12 and 2012–13 period due to weaker economic growth projected for those years.

A lower 2009–10 tax base is largely due to weaker Personal Income Tax revenues reported in the 2009–10 Public Accounts. This lowers the revenue base upon which projected growth is applied, resulting in lower revenues over the forecast period.

Changes to Government of Canada transfers in 2011–12 reflect updated estimates based on current agreements and funding arrangements with the federal government.

Other Non-Tax Revenue changes largely reflect updated information based on the current forecast.

MEDIUM-TERM EXPENSE OUTLOOK

A key element of the 2010 Budget plan to eliminate the deficit was a commitment to manage down expense while following through on policies that support jobs and growth to ensure future opportunity and prosperity. The government is committed to maintaining a prudent and responsible approach to managing growth in expense, while preserving public services.

The medium-term expense outlook is consistent with the 2010 Budget plan, and reflects the impact of the following adjustments:

a lower interest on debt forecast, as a result of lower interest rates than those projected in the Budget; and

the measures the government is taking to manage spending and reduce costs.

The government remains committed to ongoing expenditure management and has a long track record of effectively realizing savings and efficiencies (for further details, see Chapter 1, Section B: Managing Responsibly). As outlined in the 2010 Budget, the government has continued its comprehensive review of all government programs and services. To date, this review has identified over $260 million in potential savings through both programming and administrative expenditure reductions. The government will continue to identify program efficiencies to ensure the rate of expense growth remains well below the rate of growth in revenue over the medium term.

MEDIUM-TERM FISCAL OUTLOOK

The Province is on track to meet the fiscal targets established in the 2010 Budget. Ontario's fiscal outlook includes steadily declining deficits of $18.7 billion in 2010–11, $17.3 billion in 2011–12 and $15.9 billion in 2012–13.

In recognition of the ongoing challenges in the global economy, such as sovereign debt concerns and trade imbalances, as well as the uncertain outlook for the U.S. economic recovery, the medium-term fiscal outlook continues to include a reserve of $1.0 billion in each of 2011–12 and 2012–13.

Table 6Medium-Term Fiscal Plan and Outlook($ Billions)

Actual

Projected Outlook

2009–10

2010–11

2011–12

2012–13

Total Revenue

95.8

107.7

107.6

111.8

Expense

Programs

106.3

115.9

113.1

114.5

Interest on Debt

8.7

9.7

10.8

12.2

Total Expense

115.1

125.6

123.9

126.7

Reserve

–

0.7

1.0

1.0

Surplus/(Deficit)

(19.3)

(18.7)

(17.3)

(15.9)

Note: Numbers may not add due to rounding.

RISKS TO THE FISCAL OUTLOOK

Although economic recovery is underway in Ontario, significant risks remain that could cause variances to both the Province's revenue and expense outlooks.

Detailed information on revenue and expense risks and sensitivities can be found in Chapter II of the 2010 Budget.

Section D: Federal Partner

Through the recent global recession, Ontario and the federal government worked closely together to support the economy. Both levels of government coordinated investment in infrastructure, provided financial support to the auto industry and worked together on sales tax harmonization. The federal government also provided additional support for skills training.

The Province's Open Ontario plan will help Ontarians increase productivity and promote economic growth. The plan includes new investments in education and continuing investments in labour-market training and health care. During a time of continued economic uncertainty, the Province seeks the federal government's ongoing support in strengthening Ontario and Canada.

Ontario has been asking for fairness in all transfers and this should include programs and supports in the areas of immigration and labour-market training.

A NEED FOR IMMIGRANT SETTLEMENT AND SKILLS TRAINING SUPPORT

The Province looks to the federal government to provide adequate settlement and training support for new Canadians in Ontario. To date, the federal government has underspent its commitments through the Canada-Ontario Immigration Agreement by more than $200 million. The federal government must fulfill this commitment and flow this money to immigrant service agencies immediately. This is particularly important considering immigrants will account for a significant and rising share of labour-force growth in the coming years. Ontario is committed to supporting the success of its immigrants. To improve outcomes for immigrants who choose Ontario as their home, the federal government must immediately begin negotiations on a new agreement with Ontario — one that would give the Province greater policy control and full funding support for immigrant settlement and training.

In its 2009 budget, the federal government increased funding for
labour-market programs through time-limited enhancements that provided much-needed assistance to workers affected by the recession. These enhancements, which will expire on March 31, 2011, provided additional support of approximately $314 million per year in 2009–10 and 2010–11. Ending this funding means that tens of thousands of Ontarians will lose the opportunity to develop labour-market skills that are crucial in the current economic climate. Ontario is asking the federal government to extend the labour-market training enhancements to provide Ontarians with greater opportunities to transition their skills to the new economy.

A NEED FOR RELIABLE LONG-TERM FUNDING SUPPORT

The federal government has used time-limited funding to support the delivery of provincial services. When federal support for provincial programs such as health care declines over time or ends, it leaves Ontario with significant financial pressures to continue delivering these much-needed services. Time-limited federal funding reflects a lack of commitment to the needs of Ontario families. This approach hurts the province's prospects for a stronger Ontario and a stronger Canada.

Provincial governments are working together to manage the cost of health care services, including work on the pan-Canadian procurement of drugs and medical equipment, and sharing of clinical best practices. To continue to deliver the quality services on which Ontarians rely, Ontario needs the federal government to renew its commitment to fund the reduction of health care wait times.

Provinces need a strong and sustained federal commitment beyond 2013–14 to help them plan to meet future demand for health care, postsecondary education and social services. The growth of major federal transfers in support of health, postsecondary education and social programs is currently set in federal legislation until the end of 2013–14. Ontario is encouraged that the federal fiscal plan provides for growth in major federal transfers at current legislated rates for an additional two years to 2015–16. The future of universal health care depends on the federal government providing adequate financial support to provinces and territories.

AN ONGOING PARTNERSHIP

The federal government and interested provinces and territories are working together to establish a Canadian Securities Regulator. In order to meet the needs of Canadian capital markets, the national regulator should be centred in Toronto, Canada's financial capital.

Ontario wants a federal partner that supports the initiatives the Province is implementing in response to new and emerging economic, demographic and social realities that will help with its long-term economic transformation. Ontario looks to the federal government for continued support to be a true partner in the areas of health care and postsecondary education, and to work with Ontario to support its immigrants as well as its economic plan going forward.

1Interest on Debt expense is net of interest capitalized during construction of tangible capital assets of $0.1 billion in 2009–10, $0.2 billion in 2010–11, $0.2 billion in 2011–12 and $0.2 billion in 2012–13.

2Net Debt is calculated as the difference between liabilities and financial assets. The annual change in Net Debt is equal to the surplus/deficit of the Province plus the change in non-financial assets; and the change in the fair value of the Ontario Nuclear Funds. Accumulated Deficit is calculated as the difference between liabilities and total assets. The annual change in the Accumulated Deficit is equal to the surplus/deficit plus the change in the fair value of the Ontario Nuclear Funds.

1Sales Tax in 2010–11 includes Retail Sales Tax and Harmonized Sales Tax. Effective July 1, 2010, the Retail Sales Tax was replaced with a value-added tax and combined with the federal Goods and Services Tax to create a federally administered Harmonized Sales Tax.

2Beer and Wine Tax replaces reduced Beer and Wine Fees (-$343 million) and the reduced sales tax on alcohol (-$71 million). There is no net new revenue for the Province.

1Details on other ministry expense can be found in Table 10, Other Expense.

2Future updates will reflect the impact of previously announced ministry restructuring details

3Interest on debt is net of interest capitalized during construction of tangible capital assets of $148 million in 2009–10 and $212 million in 2010–11.

4As in past years, the Year-End Savings provision reflects anticipated underspending that has historically arisen at year-end due to factors such as program efficiencies, and changes in project startups and implementation plans.

3Third-party contributions to capital investment in the consolidated sectors (schools, colleges and hospitals).

4Mostly federal government transfers for capital investments.

5Total Provincial Infrastructure Expenditure includes acquisitions of tangible capital assets by the Province and consolidated sectors (schools, colleges and hospitals). The share of 2009–10 Total Provincial Expenditure attributable to Investment in Capital Assets is $8.3 billion.

1Revenue and expense have been restated to reflect a fiscally neutral accounting change for the revised presentation of education property taxes, as described in the 2010 Ontario Budget.

2Starting in 2002–03, investments in major tangible capital assets owned by the Province (land, buildings, and transportation infrastructure) have been capitalized and amortized to expense over their useful lives. Starting in 2009–10, investments in minor tangible capital assets owned by the Province were capitalized and amortized to expense. All capital assets owned by consolidated organizations are being accounted for in a similar manner.

3Starting in 2005–06, the Province's financial reporting was expanded to include hospitals, school boards and colleges. Total expense prior to 2005–06 has not been restated to reflect expanded reporting.

4Interest on Debt is net of interest capitalized during construction of tangible capital assets of $148 million in 2009–10 and $212 million in 2010–11.

5Net Debt is calculated as the difference between liabilities and financial assets. The annual change in Net Debt is equal to the surplus/deficit of the Province plus the change in non-financial assets and, effective April 1, 2007, the change in the fair value of the Ontario Nuclear Funds.

6Starting in 2009–10, Net Debt includes the net debt of hospitals, school boards and colleges consistent with Public Sector Accounting Board standards. For comparative purposes, Net Debt has been restated from 2005–06 to 2008–09 to conform with this revised presentation. Net Debt has also been restated in 2003–04, 2004–05 and 2005–06 to reflect the value of hydro corridor lands transferred to the Province from Hydro One Inc.

7Accumulated Deficit is calculated as the difference between liabilities and total assets. The annual change in the Accumulated Deficit is equal to the surplus/deficit plus, effective April 1, 2007, the change in the fair value of the Ontario Nuclear Funds. For further information, visit http://www.fin.gov.on.ca/en/budget/paccts/2010.